Assets under management in private equity funds continue to grow and so does the desire for LP’s to see co-investment opportunities alongside these funds. Generally reserved for the most important investors, many fund managers have entered into
these arrangements to get proprietary deal flow, deep industry expertise, exceptional portfolio governance or large fund commitments from its LPs. A typical co-investor would not pay management fees or carried interest on the “sidecar” amount. A recent study by Fitch shows that notwithstanding the revenue impact to fund sponsors, these arrangements are popular and have had an “overall neutral impact to the sector” (see article: Direct, Co-Investments Drive Shifts In Private Equity).
Family investors with the same co-investment objectives might be surprised to learn that their family’s expertise and connections within an industry are enough to obtain co-investment rights. Investing in a series of smaller funds, for example, may allow them the opportunity to put more money to work with lower actual committed amounts, lower fees and lower carried interest payments all of which should drive higher overall returns and more freedom to “pass” on a sidecar opportunity.
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